Why is it that many parents refuse to teach their children how to manage money the right way? One reason could be that the parents attach some kind of emotional association to money so that they become afraid of money or teaching money management to their children. Some parents feel guilty about the fact that they have not handled money well (which explains why their family is always needy.) Other parents may feel disappointed that they have not been able to build a sizeable nest egg that they can use for their retirement. Yet others may be afraid of making a mistake at some point that will cost them their dream of being able to send their kid to college. And yet, personal financial management is very important and all children should be taught about it from an early age onwards.
To be truthful about it, children do get some kind of personal financial planning skills just from their ordinary standard school curriculum involving arithmetic and mathematics. These skills could be inclusive of how to tell what interest rates you stand to earn, how to compute for percentage, how to set up the right kind of budget, and how to balance checkbooks. And many parents would really prefer it if the school were to teach the more advanced personal financial management skills as well, later on in the higher school levels.
But the truth is, parents also have that responsibility to teach their offspring how to manage personal finances using the right personal finance tools. Here are five ways that parents can provide personal finance advice and personal finance help to their own children:
First, never rely on money to show your love or be a substitute for actual human love. Some parents opt to simply buy gifts when they feel guilty about neglecting their children (or feel they are neglecting their children.) Children who receive gifts rather than actual love may come to believe that you can only show love by spending money.
Second, always be realistic when you observe that your child has a problem with managing money. It seems that there are children who take to saving money like a duck to water; while other children may fritter away their allowance on unnecessary things until nothing is left. Most children fall into the middle ground between these two polar opposites. Though this may seem like a formidable problem for you to deal with, you should try to find ways to help your child manage personal finances better. You can do this by identifying their personality weaknesses and figuring out what problems could result from such weak parts of the psyche of your child.
Third, allow your child to be able to experience how budgeting properly works. Give him an allowance that is perfect only for his current needs, dissuade him from asking for an extra allowance, and tell him about the dangers of getting into debt with other people. You may then propose to your child that he can earn extra pocket money if he does. certain chores for you or other people. This may be useful if your child likes certain things like video games but cannot afford that on his school allowance.
Fourth, a child who is eyeing an expensive toy in a store will probably not understand how hard it is to earn money for that toy – rather, all he knows is that he wants that toy badly. Here you can insert a bit of personal financial management as well. You can opt to buy the toy but let your child pay for it in increments by earning money through chores; and you can hold on to the toy while the child is still paying for it. This is a sound way to impart the lesson of being prudent with how you manage personal finances and the reward that comes afterwards.
One way that can motivate your child to manage personal finances in a systematic way is for you to open a bank account in his name. This is usually appropriate for kids who are at least 10 years of age. It would be good to take the child to the bank so that he can see how bank accounts are opened and how a deposit can be made into his own account. Some parents treat this as a reward for children who have done particularly well in school or who are already at a certain age. Not only does it serve to mark a milestone in the life of the child, but it teaches valuable lessons in the work/reward equation.